Sep 2019

Trend of Natural Gas and LNG Prices

  • During the five-year period from 2014 to 2019, Japan's average LNG import price went down from USD 16s per million Btu to around USD 10 in recent months. This is largely due to the downing trend of crude oil prices, to which long-term contract LNG prices are still pegged.
  • Japan's average LNG import price went up slightly from USD 10.01 in 2018 to USD 10.39 in the first half of 2019. Although Japan's average LNG import price went down to USD 9.36 in June, it was 1.6 - 2 times as expensive as Assessed spot LNG prices in Northeast Asia (JKM) on average during the second quarter of the year, representing the largest relative gap between the two since 2011. This seems to be due to ongoing massive LNG supply capacity expansions, and weaker appetite for LNG in Asia, particularly from the traditional three LNG markets in Northeast Asia - Japan, Korea and Chinese Taipei. Even in China, growth of LNG import has been moderated from 40% in 2017 and 2018 to 19% in the first half of 2019, on annualised basis.
  • JKM declined from around USD 10 per million Btu for January in 2019 delivery to the middle of USD 4s for July in 2019, August and September delivery, a historically remarkable decline to also a historically low level. Those spot LNG prices in Northeast Asia, which in recent years moved in the range between European spot gas prices as the lower end and crude oil equivalent as the higher end, have stayed near the lower end so far in 2019.
  • Japan's average LNG import price in July 2019 was USD 9.55 per million Btu (USD 0.19 higher than in June), while the METI spot LNG price was USD 4.7 (USD 2.8 lower than June). The Henry Hub price at the end of August stood at USD 2.285, declining further from the same time one year earlier responding to the sustaining growth of natural gas production in the United States. Meanwhile the NBP price was USD 3.662 equivalent, less than half of the price one year earlier, reflecting continuous inflow of LNG and unseasonably high inventory in natural gas storage.
  • In September 2019, European spot gas prices temporally surged due to rising uncertainty of power availability from French nuclear plants, uncertain prospects of the gas transit talks between Russia and Ukraine, and possibly diminishing Groningen production in the Netherlands. However, they dropped back shortly reflecting continuously abundant gas supply. In terms of assessed spot LNG prices in Northeast Asia, following the upward trend in Europe and the attacks on oil facilities in Saudi Arabia on 14 September 2019, as well as expected demand in winter, it went up sharply for only two days, followed by another downward trend thereafter.

LNG and Spot Gas Prices, 2014-2019

LNG and Spot Gas Prices, 2018-2019

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(source)
Henry Hub price: NYMEX Futures and Options, CME Group
NBP price: ICE Futures Europe, Intercontinental Exchange
JKM: LNG Japan/Korea Marker© 2019 by S&P Global Platts, a division of S&P Global Inc.
METI spot price: Spot LNG Price Statistics, Ministry of Economy, Trade and Industry
Japan’s average LNG import price: Trade Statistics of Japan

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Trend of Natural Gas and LNG Inventories

Japan

  • Japan's LNG inventory levels have been generally high in connection with the country's LNG consumption levels, as the country is almost solely dependent on imported LNG for its natural gas supply. In case of Europe and the United States, as there are many underground gas storage facilities, LNG inventory levels are relatively lower compared with Japan.  It is assumed that there seem to have another approximate of 1.5 million tonnes of LNG cargos which are being transported to Japan.
  • Moreover, more than 60% of LNG is still used by electric power companies, who also have different sources of power production and use LNG to more or less as backup sources to adjust gaps or surplus of their total power generation. In recent years, operational performances of the country's nuclear power reactors, as well as increasing power supply from renewal energy sources, have dramatically changed the operation of LNG inventories. This is why the total inventory level at the end of November 2018 almost reached 5 million tonnes.
  • Japan's LNG inventory as of the end of May 2019 stood at 4.49 million tonnes, an increase by 7.6% from the preceding month and 5.1% from one year earlier. Due to higher temperatures LNG consumption for city-gas supply declined in May 2019 by 13.9% from the preceding month, resulting in an inventory increase of LNG for city-gas supply by 9.3% from the preceding month and 15.3% from May 2018. While gas-fired power generation decreased by 11.2% from the preceding month resulting in a 5.9% month-on-month increase of LNG inventory for power generation, the inventory, in fact, decreased year-on-year by 3.6%.

Japan end of month LNG inventory, 2014-2019

Japan end of month LNG inventory, 2018-2019

(Source)
Compiled based on data from Gas Business and Thermal Power Generation Statistics, Ministry of Economy, Trade and Industry.

United States

  • U.S. Natural Gas Underground Storage facilities generally inject more gas in summer starting in April and send out more gas in winter starting in November. Those trends have been created by the volume needs to use more gas in heating in winter, as well as by commercial motivations to buy gas cheap in lower demand periods between April and October and sell at higher prices in winter peak demand periods. Those trends have in recent years, however, to some extent moderated by increasing use of natural gas in power generation, particularly in summer peak periods.
  • The level of storage have tended to be lower especially since 2018, as more gas is exported by pipeline to Mexico, as well as to other countries in the form of LNG.
  • According to data from the U.S. Energy Information Administration (EIA), Storage stocks began the 2018 and 2019 injection seasons from April at relatively low levels, 1,335 Bcf and 1,155 Bcf. In 2018, operators replenished inventories at a lower-than-normal rate during the injection season, because of record-high power demand during the summer. As a result, total storage stocks for the end of November 2018 reached only 2,991 Bcf - the lowest since 2002.
  • Working gas in storage was 2,941 Bcf at the end of August 2019, a 11.7% increase in one month, according to EIA estimates. Stocks were 383 Bcf higher than one year earlier and 82 Bcf below the five-year average. The total working gas is within the five-year historical range.
  • During the recent 5 years from 2014 to 2019, no new natural gas storage facilities began operating.

U.S. Natural Gas Underground Storage, 2014-2019

U.S. Natural Gas Underground Storage(Aug 2018-Sep 2019)

(Source)
Compiled based on data from the U.S. Energy Information Administration (EIA)

Europe

  • The European gas storage capacity (working gas volumes)  of the Aggregated Gas Storage Inventory, AGSI plus members (including European Union (EU) member companies and non-EU (Serbian and Ukraine) member companies) increased by 14% from 954 TWh to 1090 TWh as of the beginning of August in five years’ time.
  • Those storage facilities generally inject more gas in summer starting in April and send out more gas in winter starting in November. Storage levels go down to 20% - 30% of working capacity at the end on the withdrawal period and go up to 80% - 90% at the end of injection period.
  • However, in recent couple of years, fluctuation of fullness levels has become larger, partly because of extreme weather conditions as well as commercial motivations of shippers of those gas storage facilities. The extreme winter cold of early part of 2018 drove down the total storage level to 18% at the end of March that year. The flood of LNG volumes imported into the region starting from the latter half of 2018 has increased volumes in gas storage in summer 2019. Those operators who want to buy gas cheap and sell it expensive tend in winter to use those facilities.
  • The stored volume as of the end of August 2019 was 1,005 TWh, 11.3% higher than the previous month, 207 TWh or 26.0% higher than one year earlier, and 177 TWh higher than the five-year average. The volume represents more than 92% of the working capacity, approaching the full capacity much faster than usual.

European Natural Gas Storage, 2014-2019

European Natural Gas Storage, Sep 2018-Sep 2019

(Source)
Compiled based on data from Gas Infrastructure Europe, Aggregated Gas Storage Inventory (AGSI). The 5-year range and average figures in the graphs do not mean the full 5 years storage amount because only data since January of 2011 is available.

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